Euro still defying gravity but Aussie dollar off awaiting RBA today

US bonds are higher after the data was stronger overnight that many expected. The 10 year finished at 2.53% up five points for a whopping 2%+ capital loss.

The key here was that the data showed that the US economic weakness we saw in Q1 has likely already run it course and Q2 is looking healthier. As measured by the Markit PMI my colleagues at BI US wrote this morning that “May manufacturing purchasing managers’ index (PMI) increased to a three-month high of 56.4 from 55.4 in April…”With the exception of a brief spell in early-2010, output is growing at the fastest rate seen since prior to the financial crisis,”. The household sector is driving the bounce.

Also out was the ISM which even though it took three goes to get the release right a print of 55.4 was confirmation the economy is doing better than expected.

But this didn’t help stocks because some notions that the Fed might “taper the taper” as we saw in the press here today and which had been growing in the US are put to bed. At the close the Dow was 0.16% higher at 16,744, the Nasdaq was 0.13% lower and the S&P hardly budged up 1 to 1,925.

In Europe the data almost guaranteed lower rates from the ECB and even the follow-on step of quantitative easing with German CPI falling 0.1% in May with a harmonised print of -0.3%. Year on year headline inflation is now below 1% in Germany. Elsewhere the Markit PMI’s for Europe were on the weak side still and in most cases weaker than expected except in the UK which is doing better than its continental peers.

– At the close then the Dax was 0.07% higher with a rally into the close, the CAC fell a similar amount down 0.08%, also with a late rally while in Madrid and Milan stocks were up 0.26% and 0.77% respectively. In London things looked a little better with the rise in the iron ore price helping lift the miners. At the close the FTSE was up 0.28% to 6,864.

Locally the ASX had a late rally yesterday buoyed by a recovery in miners, a Nikkei rally and a bit of M&A activity. Overnight ASX SPI 200 futures are up 6 points to 5,532 bid. On the bond boards the 3’s lost just a point to 97.22 bid (2.78%) while the 10’s lost 2.5 points to 96.305 (3.695%).

On currency markets the US dollar was solid but Euro didn’t fall as far as I would have thought given the divergent data and ECB cuts that are coming down the pipe. Euro sits at 1.3596 this morning. Stering is largely unchanged at 1.6746 while the Aussie was weighed down but the economic slowdown evident in the data yesterday and sits at 0.9247 this morning waiting to see what the RBA does and says at 2.30pm today.

Watch out for what the RBA says – i’s not expected to do anything – but it might highlights risks to the outlook or give a warning. Or it may not as may be the case. Aussie has a downside bias until we see their words.

0.9178 is the big level.

On commodity markets Nymex June crude is at $102.45 Bbl, gold is at $1,243 oz and silver is at $18.67. Copper liked the US data rising 4 cents to $3.18 lb while corn had a strangely quiet night closing largely unchanged but wheat lost around three quarters of a percent while soybeans rose 0.32%.

On the data front today it is a huge day locally with retail sales for April and the RBA’s decision. We will all be poring over every word to get any hints of their thinking. The Chinese data is also important with the release of non-manufacturing PMI and the latest read of May HSBC manufacturing PMI – both big numbers.and then EU CPI tonight might, only might, move the Euro. In the US tonight we get ISM NewYork, factory orders and vehicle sales.

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